Yves here. Ah, I remember the days when the economic crisis in Spain was at its worst and the government was offering citizenship for anyone who’d spend IIRC €220,000 on real estate. I knew it was an opportunity and I was unable to mobilize to take advantage of it.

By Don Quijones of Spain, the UK, and Mexico, as well as editor at Wolf Street. Originally published at Wolf Street

Turns out all that’s needed to halt a property bubble is a constitutional crisis of epic proportions.

Spain’s breakaway region, Catalonia, is riven in two and as unruly as ever. Just about the only thing the latest round of elections accomplished was to confirm just how divided the region is.

Catalonia’s failed bid for independence has left behind a stinking economic hangover. None of the lofty promises made by the separatist forces have materialized. Four senior politicians and political activists remain in jail. The European Commission has roundly rejected any possibility of an independent Catalonia remaining in the EU. Yet enough people voted for pro-independence parties to grant them the slimmest of majorities in the region’s parliament. And that’s enough to ensure that nothing much changes.

But one thing has changed: The rampant political uncertainty has tempered global appetite for real estate assets in the region’s capital, Barcelona. Back in July, when we last reported on the housing bubble, it looked like this:

In June 2017, the median home price in Barcelona soared 21.7% year-over-year, to €3,094 per square meter (ca. $350 per square foot), with double-digit increases across all of the city’s districts. In the city’s old town — ground zero for the tourist industry — the median price skyrocketed 35%. Property speculators, domestic and foreign, were piling in too. And as landlords focused on meeting the much more profitable needs of short-term visitors, rents soared 50% between 2013 and mid-2017.

Then, on October 1, the referendum happened and all hell broke loose. Since then, demand for real estate in Barcelona has waned, with the result that property prices fell 1.7% in the fourth quarter from the third quarter, according to Tinsa, the biggest quarterly decline since Spain’s recession ended in 2013.

The irony is that Barcelona’s City Council tried just about everything it can to dampen international demand for local real estate, from fining sharing platforms like Airbnb for featuring unlisted tourist apartments on their platforms to sanctioning local banks for refusing to sell or rent out unoccupied bank-owned properties, but to little avail, largely because Spanish national courts keep annulling the legislation it passes.

Now, it turns out that all that was needed to halt the property bubble was a constitutional crisis of epic proportions. But even that has barely put a dent in the relentless surge in the price of rents in Barcelona.

The city is already the most expensive in Spain for renting with an average price of almost €19 per square meter, compared to a national average of €7.5. In 2013, when Spain’s economy began its recovery from the burst property bubble, just 8% of rental properties in Barcelona were priced above €1,500 a month, a sum that is prohibitively expensive for most locals; now over a third are.

This price boom is happening in a city where salaries have all but stagnated since the crisis. It is now virtually impossible to find an apartment for under €800 a month, even though a third of Barcelona’s local population earns less than that amount. In Spain ten years ago, “mileurista” — a term to denote someone earning €1,000 a month — was coined to highlight the plight of young workers with low-paid jobs that could never dream of owning their own flat. Today, with a youth unemployment rate of just under 40%, becoming a “milleurista” has become something to aspire to while renting a flat in Barcelona — or even a room in a flat — has become an impossible dream for many young workers.

To make matters worse, the steaming hot property markets in Barcelona and Madrid are now so stacked in the seller’s favor that tenants are increasingly been made to bear the full cost of agency fees, which can often run into four figures, despite the fact that it’s the landlords who hire the agency’s services in the first place and who ultimately benefit financially from the deal.

To discuss ways of protecting tenants from these kinds of abuses, housing representatives from Barcelona city council recently met up with representatives from the councils of Lisbon and New York, two cities that have also witnessed huge rental booms in recent years. The result was a joint manifesto calling on the cities’ respective national governments to grant them more power to control rents to put a stop to what they call “excessive” house prices.

Barcelona City Council also dispatched representatives to Paris and Berlin to study the impact of recent legislation aimed at curbing price rises in the rental markets. Berlin, for example, is one of a number of German cities to have applied new federal laws that forbid landlords from hiking rents by more than 10% of what they were in the previous contract. In Berlin, rental contracts are valid for ten years.

Applying similar such measures in Barcelona is going to be very hard, though, for the simple reason that Madrid is unlikely to permit them. Every time Barcelona City Council or Catalonia’s regional government has tried to introduce new laws to curtail speculation in the housing market and protect tenants from evictions, abuse, or excessive rent increases, the central government has appealed them and Spain’s Supreme Court has annulled them. At the end of the day, it all comes down to one thing, political autonomy, and right now Catalonia has a lot less of that than it has had for a long time. By Don Quijones.

11 comments

“In Berlin, rental contracts are valid for ten years.”
This is not true. As in any place in Germany, rental contracts are either valid for a certain time or not restricted at all, the latter being the normal case.
There is no specific rental law for Berlin regarding the contract’s valid time.
The above mentioned restrictions do not apply for quite a lot of contracts which renders them nearly toothless.
Besides the restriction for new contracts, the landlord is allowed to increase rent by not more than 20% in 3 years, provided the last change of the rent has been not later than 18 month ago.

Thanks for the clarification, Michael. I got the information about Berlin from an article featured on Idealista, one of Spain’s most popular real estate websites. As a financial news blogger one is only as good as one’s sources, and in this case the source wasn’t good enough. I apologise, I should have double checked it.

I haven’t done any studies, but from what I can see here on the ground in Madrid, rents have risen a lot in the prime tourist areas, and it seems that the main driver of that is Airbnb. The prime tourist areas are basically the Centro, Salamanca, and Chamberí districts. Also interesting is that the high end stuff hasn’t risen much if at all. Rather it’s the apartments on the cheaper end that have jumped a lot.

That said, outside of those areas, it’s a different story. Rents don’t seem to be up nearly as much, with what increases there are driven more by the fact that relatively few people can afford to buy. You pretty much have to have 20% down plus costs (notary, the property registry fees and the ITP) to get a mortgage. As you can probably imagine, there is not a high percentage of Spaniard who can swing that. This also explains the lack of significant price appreciation, and the fact that at current rents and purchases prices, it tends to be a much better deal to buy than to rent — of course only if you can afford it. I should note that there is one major exception to the lack of significant price appreciation: luxury stuff in very prime areas, especially new construction. But the drivers behind that are tons of South American money looking for safety (mainly Venezuelan it seems), plus the depressingly standard reason of rich getting ever and ever richer.

One more thing: it has always been normal here for the renter to pay the agency fee. It may have been different in Barcelona though.

Juan, from Asturias (North Spain). The attitude towards foreigners hasn’t changed much at all. Spain is still largely a tourist-friendly country The areas under political stress (Catalonia) are a bit “peculiar”. You can find weird people, blaming you for their problems. Not the norm, anyway…

Why isn’t the solution just to build more housing (in the metro area, if not the historic core) to meet demand so everyone has a place to live and the speculators get undercut?

Isn’t this a case of (mostly older) property owners turning a human right (housing) into a winner-take-all game of musical chairs in which (mostly younger) non-property-owners transfer wealth upward (and older) while those who can’t get a chair are blamed for wanting a chair (their basic human right) in the first place?

And if you blame it all on international speculators and tourists please make clear why that isn’t just a red herring–why can’t they at least build more housing for locals outside the few tourist/expat neighborhoods? And why *wouldn’t* a desirable place to live attract a lot of visitors? Why isn’t international popularity a good thing to manage to the benefit of everyone rather than a too-much-of-a-good-thing?

Joel, in the case of Barcelona there is simply no room for further growth since it is fenced in by natural barriers on all sides (the Med to the east, the River Besos to the north, the Collserola mountain range to the west and Montjuic to the south). Plus, it’s already one of Europe’s most densely populated cities. The city proper has a population density of 16,000 people per square kilometers (41,000/sq mi), one of the highest in Europe. In the neighbourhood I live in, the Eixample, it’s as high as 36,000 per square kilometer.

By contrast, the population density of Madrid is just under 6,000 per square km. It’s already grown considerably in recent years and as far as I’m aware, there may still be room beyond the city limits for further expansion. There are also some big redevelopment projects taking shape there such as the Castellana Norte project.

DQ, thank you for that thoughtful reply. The chart you linked to seems to be for municipalities rather than metro areas. It shows 1.6 million people in Barcelona compared with, according to Wikipedia, 5 million people in the metro area. However I’ll take your argument as valid since it’s at least theoretically possible that the metro area is very dense.

However, I would say that common sense and justice demand that if people want to live there, society either has to find a way to squeeze in more density, even if that means shoebox apartments, or the central and devolved governments have to find a way to massively shift development to other parts of the country/region. It’s a “lack of political will” which is really just a power imbalance.

Jacques, as for “charm,” what is not charming is raising your children in your parents’ basement. Or sleeping under a bridge. Or having to leave the city you have lived in al your life if you ever want to have a family. The problem is that all plannign decisions now are made by and for the old, affluent, and selfish. For my money, Manhattan is one of the most charming places on earth and also one of the densest.

They could build high rise apartments but that would obliterate the charm of the city forever. Just speaking in a disgustingly utilitarian manner, the city is Spain’s single biggest tourist draw card which belies the other fact about the metropolitan area around Barcelona, that it is one of Europe’s industrial powerhouses.

I should add that Barcelona and its metropolitan area that approaches 6 million people is very much pro-Spain, but there is substantial independist support there too. This is giving the political crisis of Catalonia a geographical dimension of increasing importance.